By Christophe Bonvin
Certified expert in accounting and control
Director of Bonvin Fiduciary Office
Lecturer at Virgile Formation
As of le 1st January 2013, the principles of the new accounting law can be applied by companies on an optional basis. This in-depth review of the accounting rules – the entirety of title 32e of the Code of Obligations has been overhauled – must be taken into account starting le 1st January 2015. It is therefore crucial for companies to master these new principles in light of the fast approaching 2015 end-of-year accounts.
Obligation to keep accounts and presentation of financial statements
The criteria related to bookkeeping obligations are not only the legal status of the company, but mainly its economic size. The new accounting law now divides companies into three distinct categories:
LEVEL 1 (small companies):
entreprises individuelles et sociétés de personnes avec un chiffre d'affaires annuel inférieur à 500'000 francs, associations et fondations qui n'ont pas l'obligation d'être inscrites au registre du commerce, fondations dispensées de désigner un organe de révision;
LEVEL 2 (ordinary companies):
Sole proprietorships and partnerships with an annual turnover greater than 500,000 francs and legal entities that are not required to submit their annual accounts for an ordinary audit;
LEVEL 3 (large companies):
Corporations and foundations that are required to submit their annual accounts for an ordinary audit in accordance with art. 727 CO and large associations.
Under the new rules of the Code of Obligations, small companies can simply keep records of revenue and expenditure as well as assets, also designated as simple accounting. This presentation of the accounts was intended by the legislator as a means of simplification. However, although accepted by the tax authorities, this method is not without its drawbacks. If you are looking to obtain credit, it is likely that the bank will require more comprehensive accounting to make its decision.
Ordinary businesses, they have the obligation to prepare double-entry accounting and to submit a management report that includes a balance sheet, income statement and annex. It should be noted that sole proprietorships and partnerships are not required to prepare an annex. Large companies, on the other hand are obliged, in addition to the balance sheet, income statement and annex, to present a cash flow statement and annual report. In addition, the annex to the accounts must include more information than for ordinary businesses, such as the amount of fees paid to auditors for review and other possible services and the breakdown of long-term debts with details depending on their maturity (from 1 to 5 years and over 5 years).
Financial statements according to a recognized accounting standard
One of the big new features is the obligation to keep accounts according to a recognized accounting standard for companies that trade on the stock market (where required by the stock exchange), cooperatives of over 2,000 members and foundations subject to standard monitoring. Companies that draw up consolidated accounts are also subject to this rule. This means that the aforementioned companies will now, in addition to their annual tax accounts drawn up according to the Code of Obligations, have to present their accounts according to a recognized accounting standard defined by the Federal Council (Swiss GAAP FER, IFRS, US GAAP). The new accounting law also enables business owners to demand bookkeeping according to a recognized accounting standard. This is the case if a group of partners or shareholders together represent at least 20% of the capital of a company, 10% of members of a cooperative, or 20% of the members of an association. It should be noted that the financial statements prepared in accordance with a recognized standard are presented to the senior authority on approval of the annual tax accounts, but do not require any approval.
Principles of presentation and assessment of yearly accounts
The significant accounting policies of the old law have been adapted or clarified while some new aspects have been introduced. Overview of key changes.
Changes regarding the presentation of accounts
- The management report must be drawn up within six months of the end of the year. The management report must be signed by the president of the senior management or administrative body and by the person responsible for drawing up the accounts.
- The principle of the previous year's values has been introduced: this means that it becomes mandatory to present the previous year’s figures in all sections of the annual accounts.
- Accounts can now be presented in the most important currency with regard to the company (for example USD or EUR); the equivalent in Swiss francs and the currency exchange rate used must still be indicated in the annex.
- The financial statements are drawn up in a national language or – and this is a new development – in English.
- In terms of presentation of the balance sheet, interest-bearing should be separated from non interest-bearing debt, while shareholder stock must now be presented as a decrease in shareholder equity.
- The statutory capital reserves (premium, bonus) and legal reserves coming from profits (mandatory attribution in the event of profit-earning distribution) must be indicated separately.
- Receivables and debts to shareholders, the company organs and the companies in which the company holds a direct or indirect interest must be presented separately in the statement or in the annex.
- As a general rule, the content to be included in the annex to the annual statements has been extended, namely with regard to applied accounting principles, comments regarding certain balance sheet items and the statement attesting that the yearly average of full-time employed positions does not exceed, depending on the situation, 10, 50 or 250.
Changes regarding evaluation principles
- If net turnover does not exceed 100,000 francs, there can be an exemption from the accrual principle.
- The principle of prudence, a pillar of Swiss accounting law has not been changed in substance: it is still possible to create and release latent reserves according to the usual commercial rules; moreover, article 960 e para. 4 of the Code of Obligations specifies that provisions that are no longer justified do not necessarily have to be released, which means that latent reserves are authorized.
- Assets traded on the stock market or having an observable current price on an active market can (but do not necessarily have to) be valued according to the market rate or the current price, even if this rate is higher than the acquisition price.
- Unbilled work in progress must be measured and valued consistently and taken into account in total turnover. This will undoubtedly have an impact on companies that have not taken this factor into account up to now.
- Start-up, organization and capital increase costs can no longer be activated and thus must be amortized immediately and fully through the profit and loss account.
Through the new accounting law, the Federal Council’s intention has been to introduce tax relief for small businesses, to force large companies to provide more information and transparency in their financial statements and strengthen the rights of minorities.
In practice, since most companies are ordinary in size, it is mainly with regard to the formal presentation of the 2015 accounts that there will be major changes. Large companies will, in addition, have to comply with additional new requirements under the Code of Obligations. In accounting terms, it is the issue of valuing unbilled work in progress that will pose the most problems, as the impact in terms of additional revenue could be substantial in certain sectors of activity, especially for the liberal professions. To ease the tax burden of this change, we should recall that the Pro-Economy.vs association had the presence of mind to negotiate with the Valais cantonal contributions authority to be able to spread the release of the latent reserves over three fiscal years by creating a provision
In conclusion, we recommend that all companies established in Valais anticipate the numerous changes that will inevitably occur during the 2015 end-of-year accounts. By preparing for this event now, the tax burden of the new accounting law will be limited or compensated by appropriate fiscal optimization measures.